Leadership & Organization Development Journal

Transformational leadership and job satisfaction: the moderating effect of

contingent reward
Albert Puni, Ibrahim Mohammed, Emmanuel Asamoah,
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Albert Puni, Ibrahim Mohammed, Emmanuel Asamoah, (2018) "Transformational leadership and job
satisfaction: the moderating effect of contingent reward", Leadership & Organization Development
Journal, https://doi.org/10.1108/LODJ-11-2017-0358
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The moderating
Transformational leadership and effect of
job satisfaction: the moderating contingent
reward
effect of contingent reward
Albert Puni
Department of Business Administration, University of Professional Studies,
Received 18 November 2017
Accra, Ghana Revised 28 March 2018
Ibrahim Mohammed Accepted 12 April 2018

Department of Banking and Finance, University of Professional Studies,

Accra, Ghana, and
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Emmanuel Asamoah
Department of Business Administration, University of Professional Studies,
Accra, Ghana

Abstract
Purpose – The purpose of this paper is to investigate the mechanisms that link transformational leadership
to employee job satisfaction by examining the moderating effect of contingent reward on the relationships.
Design/methodology/approach – The study employed explanatory and cross-sectional survey
design. Data were obtained from 315 bank employees and analyzed using correlational and multiple
regression techniques.
Findings – The results revealed that there are positive relationships between the dimensions of
transformational leadership and job satisfaction which are augmented by contingent reward. However, the
relationships of idealized influence and intellectual simulation to job satisfaction are moderated by contingent
reward, implying that, in the banking sector, the positive influence of these transformational leadership traits
on employee job satisfaction can be enhanced by contingent reward.
Originality/value – The paper makes an important contribution to the existing organizational literature by
establishing the utility of contingent reward as a moderator on the relationship between transformational
leadership and employee job satisfaction in a banking sector.
Keywords Leadership styles, Full-range theory, Organizational study, Path-goal theory
Paper type Research paper

Introduction
Leadership and job satisfaction have long been primary areas of research in
organizational studies. Many of the existing studies on this subject have examined the
relationship between the two variables and concluded that leadership has an influence on
a range of work outcomes including employee job satisfaction (Boehnke et al., 2003;
Chang and Lee, 2007; Fernandez, 2008; Griffith, 2004; Mohammad Mosadegh Rad and
Hossein Yarmohammadian, 2006; Shaw and Newton, 2014; Siddique et al., 2011; Yang and
Islam, 2012; Yang, 2014). Compared to all other leadership theories combined, the
leadership styles theory, of which transformational leadership is a part, has received the
most attention in the literature (Antonakis and House, 2013). The justification for this is
that transformational leadership is believed to generate inspiration amongst followers
that enables them to think beyond their own aims and interests and achieve greater team,
organizational, national and global objectives (Bass and Avolio, 1990, 1995; Durbin, 2001;
Jandaghi et al., 2009; Northouse, 2004).
Despite the substantial volume of research on transformational leadership and work Leadership & Organization
Development Journal
outcomes, particularly job satisfaction, there is still much uncertainty about the relationship © Emerald Publishing Limited
0143-7739
between these two variables. Extant literature has described the relationship between DOI 10.1108/LODJ-11-2017-0358
 LODJ transformational leadership and job satisfaction as positive, negative or neutral. For
example, Wan Omar and Hussin (2013) and Hanaysha et al. (2012) found a positive
relationship between intellectual stimulation dimension of transformational leadership and
job satisfaction. To the contrary, Thamrin (2012) reported negative outcome between
transformational leadership style and job satisfaction.
Apart from the prevailing uncertainty about the relationship between transformational
leadership and employee job satisfaction, questions still remain on the effect size and the
interactive effect of transformational and transactional leadership on job satisfaction.
In prior research, House (1996) has proposed that there is an interplay between contingent
personal reward (an important aspect of transactional leadership) and aspects of
transformational leadership. He posited that there is a negative interaction between
contingent reward and transformational leadership in enhancing follower outcomes such
that the relationship of aspects of transformational leadership should be stronger for low
contingent reward, relative to high contingent reward. Bass and Avolio (1994) have also
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argued that the association between transformational and transactional leadership has been
one of augmentation. That is, transformational leadership will significantly predict follower
outcomes after controlling for transactional leadership.
In a study to test the proposed interaction between transactional and transformational
leadership, Schriesheim et al. (2006) did not find support for House’s proposed negative
interaction or Bass and Avolio’s proposed augmentation hypothesis. However, in a
meta-analytic study, Judge and Piccolo (2004) found support for the augmentation
hypothesis. Vecchio et al. (2008) also found support for both the augmentation and negative
interaction effect on performance. From the foregoing studies, it is evident that the empirical
landscape of the relationships between transformational leadership styles and job satisfaction
has mixed results and therefore one cannot absolutely conclude or generalize on their
relationships. The difficulty in generalizing such findings lies in the fact that transformational
leadership and employee job satisfaction are disposed to the environmental and cultural
settings that pertain to a study area or setting. Thus, the need for further studies cannot
be overemphasized.
In their call for further research on this topic, Schriesheim et al. (2006) acknowledged the
importance of focusing on a relevant level of analysis while Vecchio et al. (2008) suggested
that the additional dimensions of transformational leadership should be examined in a
different context to see if alternative results will be attained. Taking into account these
recommendations, the present study sought to test both the augmentation hypothesis and
the moderation effect of contingent reward (i.e. transactional leadership) on the relationships
between the dimensions of transformational leadership and employee job satisfaction in the
Ghanaian banking industry. Similar to other banking industries, the Ghanaian banking
industry is noted to experience high labor turnover which is associated with job satisfaction
and leadership. Thus, the findings of this study will contribute to the understanding on the
mechanisms that link leadership styles to employee job satisfaction.

Literature review
Leadership styles theory and transformational leadership
Originally introduced by Burns (1978), extended by Bass (1985) and further expanded by
Bass and Avolio (1995, 1997), the leadership styles theory also known as the “full range
leadership theory” (FRLT) has been widely applied in leadership studies and achieved
unprecedented acceptance in the management and leadership literature (Antonakis and
House, 2013). With this theory, the core idea is based on the ideals of a leader which ignites
work outcomes. According to Bass (1998) and Bass and Avolio (1995, 1997), the FRLT
comprises three broad classes of leadership styles, namely, transactional, transformational
and laissez-faire (or passive avoidant). The transactional leadership style postulates that
 people are easily motivated by rewards and punishments while laissez faire is a kind of The moderating
non-leadership style in which decisions are not made, actions are delayed, leadership effect of
responsibilities ignored and authority unused (Bass, 1998). In contrast, transformational contingent
leaders focus on intrinsic motivation and personal development of their followers.
The transformational leaders provide a vision and a sense of organizational mission; inspire reward
pride, respect and trust among their followers (Bass and Riggio, 2006; Sivanathan and
Cynthia Fekken, 2002).
A key assumption underlying transformational leadership is that people will follow a
leader who inspires and motivates them. Burns (1978) describes a transformational leader as
one that looks for potential motives in followers, seeks to satisfy their needs and involve the
followers fully in the entire process of change. Northouse (2010) views transformational
leadership simply as a development that transforms individuals. In other words, the
transformational leader displays the ability to get people to want to change and afterwards to
champion it. The leader motivates the followers to perform remarkably by inspiring them,
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offering intellectual challenges, paying attention to individual growth needs and ultimately
leading them to rise above themselves for a shared purpose. Transformational leadership
focuses on producing innovative change in institutions through getting followers to willingly
commit to the organization’s vision and long-term goals (Sullivan and Decker, 2001).
Often incorporating charismatic and visionary leadership, transformational leadership
involves significant usage of sway that moves followers to achieve more than is ordinarily
required of them. Trofino (1992) argued that transformational leaders have the ability to
clearly communicate a vision of the future through capturing follower’s imaginations with
brilliant accounts of the great prospect they hope to construct together. Leaders and
followers engage with each other in such a way that they raise one another to higher levels
of motivation and morality. This leadership style empowers employees to achieve a
shared vision and both leader and follower end up changing for the better. Normally,
transformational leadership style is opposed to transactional or laissez-faire leadership.
Avolio et al. (1999) argued that transformational leaders have done more with their
followers than transactional and laissez-faire. Practically, transformational leadership is
manifested through four main types of behaviors (or the 4Is dimensions) – idealized
influence or charismatic, inspirational motivation, intellectual stimulation and
individualized consideration.
Idealized Influence/Charisma refers to conduct that elicits respect, admiration and trust
from followers. This leadership dimension tends to share an emotional bond with followers
and are usually looked upon as role models and normally seen to lead by example. Idealized
influence includes the extent to which the leader instills pride in followers, displays
assurance, makes personal sacrifice in championing new possibilities, talks about the
importance of having a shared sense of duty and considers the ethical and moral
consequences in taking decisions. Leaders with idealized influence are described as those
who make everyone eager about their duties, command admiration and have a sense of duty
that they transmit to followers. Managers who exhibit idealized influence are trusted to
make good decisions for the organization because they generate a profound emotional
connection with followers which creates excitement about the mission (Bass, 1985).
Howell and Avolio (1992) have suggested while many charismatic leaders tend to be “ethical
charismatics” (i.e. they incorporate their followers’ hopes, dreams and aspirations in their
vision), others tend to be “unethical charismatics” (i.e. they control and manipulate their
followers, promote what is best for themselves rather than their organizations, and have
moral standards that promote self-interests) (p. 44).
Inspirational Motivation refers to the leader’s ability to put forward an appealing vision
that spurs action toward both individual and collective goals (Bass and Riggio, 2006).
Inspirational motivation defines leaders who through the arousal and heightening of
 LODJ motivation get colleagues and followers to commit to the vision of the organization.
Inspirational motivation means the leader is able to communicate a captivating image of the
future, set inspiring ideals and take a stand on contentious subjects. Envisioning a desired
future state, making followers see that vision and showing followers how to get to that state
are part of the inspirational process (Behling and McFillen, 1996). Managers with
inspirational motivation encourage team spirit to reach goals of increased revenue and
market growth for the organization.
Intellectual Stimulation refers to leaders who seek ideas, opinions and input from their
followers to promote creativity, innovation and experimentation. Intellectual stimulation,
thus, describes managers who encourage innovation and creativity through challenging the
normal beliefs or views of a group. Intellectual simulation leaders promote critical thinking,
problem solving and challenge orthodox intelligence (Bass and Avolio, 1990). They engage
in behaviors that raise followers’ understanding of the current problems and contrast them
with their future vision. Managers exhibiting intellectual stimulation arouse in followers the
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awareness to identify and solve challenges creatively. Intellectual stimulation leaders, thus,
tend to enable followers to think of old problems in new ways.
Individual Consideration involves enthusiastically listening and accommodating team
members’ personal need for growth, learning and recognition. Individual consideration
concerns the degree to which leaders treat followers as individuals in mentoring and
coaching them. They develop appropriate personal relationships with members and give
personal attention without discriminating, helping them to achieve their goals (Bass, 1985;
Bass and Avolio, 1990). In exhibiting individualized consideration, managers identify
individual needs and abilities of followers and then guide them to attain goals that are
mutually beneficial to followers and the organization.
Compared to transformational leadership, transactional leadership comprises three
factors or dimensions. These three factors are contingent reward, management-by-exception
active and management-by-exception passive. Contingent reward leadership is based on
economic and emotional exchanges. It clarifies role requirements, and reward or praise
desired outcomes. With management-by-exception active, the leader monitors deviations
from norms and provides corrective action. Management-by-exception passive is similar to
management-by-exception active; however, passive leaders wait until deviations occur
before intervening. Apart from Laissez-faire, management-by-exception passive is the most
inactive leadership.

Transformational leadership style and job satisfaction

Human resources or employees are by far the most important assets of organizations.
Indeed, no organization can succeed without paying attention to its employees. One aspect
of employee outcomes that has attracted the attention of management and organizational
researchers is job satisfaction. Spector (1997) reported that, literally, there are thousands of
studies on job satisfaction. The vast number of these studies have recognized that job
satisfaction is a multifaceted construct that captures employee feelings about a variety of
both intrinsic and extrinsic job elements. It refers to how content an individual is with his or
her job in an organization and encompasses specific aspects of satisfaction related to pay,
benefits, promotion, work conditions, supervision, organizational practices and
relationships with co-workers (Misener et al., 1996). Thus, job satisfaction has been used
as a means to attract and retain qualified employees in the organization.
There are many factors that influence employee job satisfaction, and one of the factors is
leadership style. An effective leadership style is capable of providing motivational stimulus
and direction to followers to achieve the organizational mission and goals. Bass and
Avolio (1993) confirm the effect of various leadership styles on organizational outcomes
such as job satisfaction. According to them, transformational leaders are more effective than
 those practicing contingent reward, which also happens to be more effective than active The moderating
management by exception, which in turn is more effective than passive management by effect of
exception and laissez-faire leadership, which is seen as the least effective. These findings contingent
have been further buttressed by several other studies (Waldman et al., 1990; Pereira, 1986;
Yokochi-Bryce, 1989). It is worth noting, however, that specific dimensions of reward
transformational, transactional and avoidant leadership may show a better picture of the
particular variables that predict organizational outcomes.
Bass (1997), in a study of 120 Austrian branch bank managers and their subordinates,
reports findings indicating significant associations between the extent to which the managers
were perceived as transformational rather than transactional and the extent to which their
banks increased subsequently in customer market share and several other criteria of customer
business. This finding is corroborated by several other studies spanning both the profit and
not-for-profit sectors (Bass and Avolio, 1993; Boyd, 1988; Lowe et al., 1996).
In a study conducted by Gaspar (1992), similar patterns in the results were observed. That
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is, correlations of objective outcomes and perceived effectiveness were positive and higher in
the military respondents as compared to the civilian respondents. Judge et al. (2004) found that
initiating structure and consideration are positively related to performance. In a similar study,
the relationship between transformational and transactional leadership and performance also
confirmed positive correlations ( Judge and Piccolo, 2004). Sutherland (2013), in a study on
employment status and job satisfaction, observed that the self-employed reported a higher
likelihood of satisfaction. The study further noted that there are differences in job satisfaction
between managers in smaller establishments and managers in larger establishments.
The waged worker reported a consistent positive and significant relationship with job
satisfaction whilst for the self-employed, it was not consistent. These findings are not entirely
surprising as the likely motivators for the waged and self-employed could vary.
Thus, assessing satisfaction with similar variables is therefore bound to give an inaccurate
and erroneous perception.
Investigating the relationships between job satisfaction, individual job facets,
socio-demographic variables and job performance in the Lebanese commercial banking
sector, Crossman and Abou-Zaki (2003) concluded that job satisfaction is dependent on
particular facets of the job. Female employees were found to be less satisfied with the lower
educated workforce being the least satisfied. In a study to determine the relationship
between job characteristics and job satisfaction amongst physicians in Russia, O’Leary et al.
(2009) found male doctors reporting higher levels of satisfaction than female doctors.
Polyclinic doctors were more satisfied than those employed by hospitals whilst female
physicians were said to be more satisfied in their relations with patients and colleagues than
their male counterparts did. The study, however, indicated that the majority of physicians
were dissatisfied with management and time limitations.
Graham and Messner (1998) conducted a study in America to investigate the
relationship of gender, size of enrollment and years of experience, to principals’ job
satisfaction. Results showed that American principals were largely satisfied with their
current job, colleagues and level of responsibility. However, they were less satisfied with
their pay, opportunities for advancement and fringe benefits. Verhofstadt et al. (2007)
reported that higher educated workers are more satisfied than their lower educated
counterparts because they have a better-quality job. However, with the control of job
characteristics, a negative relationship was reported, where higher educated workers had
less job satisfaction. Boufford (1999) confirmed that the quality of leadership in the public
health sector substantially affects health outcomes.
In summing up, the extant literature shows that both transformational leadership
and job satisfaction have attracted a lot of research interests (Bass and Avolio, 1993;
Boehnke et al., 2003; Chang and Lee, 2007; Fernandez, 2008; Griffith, 2004; Hanaysha et al., 2012;
 LODJ Mohammad Mosadegh Rad and Hossein Yarmohammadian, 2006; Wan Omar and Hussin,
2013; Shaw and Newton, 2014; Siddique et al., 2011; Yang and Islam, 2012; Yang, 2014).
However, there is still much uncertainty about the direction of relationship between these two
variables and their respective dimensions. While some of the studies have found positive
association between the dimensions of transformational leadership and job satisfaction
(Hanaysha et al., 2012; Wan Omar and Hussin, 2013), others have found negative outcomes
between them (Thamrin, 2012). Further, there are differences in effect sizes ( Judge and Piccolo,
2004; Podsakoff et al., 2006), suggesting moderator relationships (House, 1996).
In view of aforementioned contradictions, the current study aimed to gain a better
understanding of the relationship between transformational leadership and job satisfaction
by conceptualizing contingent reward as a moderator variable. Figure 1 presents the
conceptual framework.
The conceptual framework in Figure 1 allows for the testing of both the augmentation
hypothesis and the moderation effect of contingent reward (i.e. transactional leadership) on
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the relationships between the dimensions of transformational leadership and employee job
satisfaction.

Methodology
Research design
This research employed explanatory and cross-sectional survey design to investigate the
causal relationship between transformational leadership style and job satisfaction. In exploring
the relationship, a quantitative research approach was employed which made use of statistical
analyses to describe and explain causal relationships. The survey method was chosen for this
study. The rationale for this choice is that it provides direction for the study process thereby
enabling the planning of ways to help achieve the objectives of the study (Altinay et al., 2015).
In addition, the survey method facilitates the identification of understandings of respondents
and making deductions from the target population.

Population and sampling

The population of interest for this study was employees of commercial banks in Ghana.
The targeted population included employees of six selected commercial banks. A purposive
sampling method was employed to select these banks from the Accra and Tema
metropolitan areas out of a total population of 28 banks. These banks were selected because
they have been in operations for at least ten years, thus affording a better assessment of the
leadership styles of their management by employees. The above Metropolises were selected
because they constitute the main financial hub of the Ghanaian economy. More importantly,

Contingent reward

Transformational leadership

• Idealized influence

• Intellectual stimulation Job satisfaction

• Inspirational motivation
Figure 1.
Conceptual framework • Individual consideration
 the two metropolises have a concentration of branch networks with the majority segment of The moderating
the organizations’ population in the country, thus making the two metropolises fairly effect of
representative of the national population of the commercial banks. contingent
The convenience sampling technique was used to select the various bank branches as
well as respondents from whom data for the study were collected. In effect, bank branches reward
which gave their approval to partake in the study were selected. This sampling technique
facilitated easy access to primary data. In all, 360 respondents were purposively sampled
from the six bank branches and their views on transformational leadership style and job
satisfaction were solicited. Out of this, 315 valid respondents were obtained for the analysis.
The sample size satisfied the Tabachnick et al. (2001) criterion for determining adequate
sample size.

Data collection, instrumentation and analysis

Data were collected using the multifactor leadership questionnaire (MLQ) and the
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Minnesota satisfaction questionnaire (MSQ). The structure of these instruments facilitates

the collection of relevant data from large samples at a reasonable cost and have been widely
applied in the literature (Antonakis et al., 2003; Avolio et al., 1999; Lowe et al., 1996).
Specifically, data were gathered on the following variables: leadership styles (independent
variables); and job satisfaction (dependent variable). Transformational leadership style was
measured by the four subscales indicated in the literature (Idealized Influence, Inspirational
Motivation, Intellectual Stimulation and Individual Consideration). Sample items from the
MLQ-Form 5X include the following: Idealized Influence (e.g. “consider followers’ needs over
his or her own needs”), Inspirational Motivation (e.g. “Arouses individual and team spirit”),
Intellectual Stimulation (e.g. “approaches old situations in new ways”), Individual
Consideration (e.g. “Pay attention to individual needs for achievement and growth”).
The MLQ-5X scale is a standardized instrument whose validity and reliability have been
found to be within acceptable range by many researchers (Antonakis et al., 2003; Avolio
et al., 1999; Lowe et al., 1996). This notwithstanding, a pilot test was conducted to test the
reliability of the instrument using Cronbach’s αs. The α coefficients for the various scales
recorded high level of reliability (i.e. α coefficients ranging from 0.77 to 0.81) since a score of
0.7 and above is considered good and acceptable in research (Nunnally, 1978). The short
form of the Minnesota Satisfaction Questionnaire (MSQ) developed by Weiss et al. (1967)
and adopted by other researchers (Polit et al., 2001) was used in gathering data on
respondents’ level of satisfaction with their jobs. This instrument was also pretested and
found to be reliable. Table II presents the reliability coefficients for both the MLQ-5X and
MSQ. Analyses of the data were conducted using correlation and hierarchical multiple
regression techniques. The use of the hierarchical regression allowed the determination of
the unique contributions of the predictor variables, the combined effect of the predictor
variable and the moderator (augmentation effect), and the interaction (moderation) effect
(Vecchio et al., 2008).

Results and discussion

Table I presents the demographic characteristics of the respondents. Overall, the sample
had more females (54.9 percent) than males (45.1 percent). Nearly half of the sample
(50.8 percent) was aged between 26 and 35 years. In terms of work experience, majority of
the respondents (46.3 percent) had worked for six to ten years. However, in respect of their
current employer, majority of the respondent (61.3 percent) had worked for less than
five years.
Table II presents the means, standard deviations, skewness, kurtosis, internal
consistencies (Cronbach’s α) and inter-construct correlations. Applying the criteria
proposed by Tabachnick et al. (2001), it can be concluded that the data are normally
 LODJ Variables Frequency (n ¼ 315) Percent

Sex
Male 142 45.1
Female 173 54.9
Age
18-25 66 21
26-35 160 50.8
36-45 78 24.7
46-55 11 3.5
Work experience
1-5 115 36.5
6-10 146 46.3
11-15 47 15
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16-20 5 1.6
21 or more 2 0.6
Years with current employer
1-5 193 61.3
Table I. 6-10 103 32.7
Demographic 11-15 13 4.1
characteristics of the 16-20 6 1.9
respondents Source: Survey Data (2015)

Variable Mean SD skew Kur α 1 2 3 4 5

1. Idealized Influence 2.65 1.22 −0.68 −0.47 0.91

2. Intellectual Stimulation 2.39 1.27 −0.31 −0.62 0.84 0.42**
3. Inspirational Motivation 2.39 1.29 −0.33 −1.03 0.80 0.53** 0.43**
Table II.
Descriptive statistics, 4. Contingent Reward 2.51 1.14 0.48 −0.76 0.87 0.47** 0.35** 0.46**
inter-correlations and 5. Individual Consideration 2.28 1.31 −0.13 −0.94 0.90 0.38** 0.32** 0.27** 0.41**
reliability coefficient 6. Job Satisfaction 3.35 1.23 0.05 −0.30 0.78 0.32** 0.36** 0.37** 0.41** 0.37**
of study variables Note: **po 0.01

distributed since Skewness and Kurtosis are between −1 and +1. Therefore, the variables
can be used in the parametric statistical tests, specifically regression analysis.
From Table II, it is also notable that all the inter-construct correlations were significant at
1 percent level of significance. In particular, the correlation between contingent reward and
job satisfaction (i.e. r ¼ 0.41) is within the range of correlations (r ¼ 0.20 and 0.44) reported in
a meta-analytic study by Podsakoff et al. (2006). Another point worthy of note is the
correlation between contingent reward and job satisfaction (0.41). This signifies that
transactional leadership could be a predictor of job satisfaction, hence a formal
augmentation analysis is necessary. This analysis is carried out by adding each style of
leadership as a predictor after initially controlling for the contribution of the other
dimensions of leadership.
Table III summarizes the regression output for job satisfaction as the dependent variable
and leadership dimensions as the independent variables. As reported in this table,
the dimensions of transformational leadership are first entered as step 1 in model 1 of
the respective blocks (where each block relates to one dimension of transformational
leadership), followed by the entry of both the dimension of transformational leadership and
 Unstandardized betas
The moderating
Model 1 Model 2 Model 3 effect of
Block Step Predictors B t B t B t R2 ΔR2 F P contingent
1 1 Idealized Influence 0.182 4.32** 0.166 3.91** 0.122 3.48** 0.127** 0.127** 78.41 0.000 reward
2 Contingent
reward (CR) 0.256 3.42** 0.225 3.52** 0.262** 0.135** 96.33 0.000
3 IIA × CR 0.116 3.77** 0.427** 0.165** 118.04 0.000
2 1 Intellectual
simulation (IS) 0.257 3.29** 0.231 3.18** 0.196 3.63** 0.148** 0.148** 86.44 0.000
2 Contingent
reward (CR) 0.293 3.97** 0.211 3.28** 0.349** 0.201** 123.98 0.000
3 IS × CR 0.175 3.41** 0.444** 0.095** 147.83 0.000
3 1 Inspirational
motivation (IM) 0.270 3.91** 0.230 2.46* 0.210 2.18* 0.132** 0.132** 76.38 0.000
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2 Contingent
reward (CR) 0.291 3.16** 0.173 2.32* 0.294** 0.162** 139.83 0.000
3 IM × CR 0.045 1.47 0.450** 0.156** 168.17 0.000
4 1 Individual
consideration (IC) 0.242 2.26* 0.209 1.76 0.187 1.58 0.196** 0.196** 66.54 0.000
2 Contingent
reward (CR) 0.368 2.11* 0.363 2.32* 0.334** 0.138** 143.78 0.000
3 IC × CR 0.082 1.77 0.436** 0.102** 166.49 0.000 Table III.
Notes: Unstandardized beta for contingent reward when entered as the initial predictor at step 1 ¼ 0.41; Regression results for
po 0.01; R2 ¼ 0.32; po 0.01; *p o0.05; **p o 0.01 job satisfaction

transactional leadership (i.e. contingent reward) as step 2 in model 2 and finally the inclusion
of the interactive term between the two variables as step 3 in model 3. This three-step
procedure was followed to test the following: the predictive effects of the specific
transformational leadership indicators (step 1), the augmented effect of contingent reward
(step 2) and the moderation effect of contingent reward (step 3).
From the results in model 1, it is clear that there is a relationship between each of the four
dimensions of transformational leadership style and employee job satisfaction. Specifically,
the transformational leadership styles have positive influences on job satisfaction among
the bank employees. The above finding is consistent with some prior literature (Vance and
Larson, 2002; Loke, 2001; Dunham-Taylor, 2000; Lowe et al., 1996; Berson and Linton, 2005;
Morrison et al., 1997). In the notes to Table III, the unstandardized coefficient for contingent
reward is reported as 0.41 when the order of initial entry is reversed. From this, two
observations are notable. First, the significant effect of contingent reward confirms that
transactional leadership contributes to predicting employee job satisfaction. Second, the
coefficient of contingent reward which is an indicator of transactional leadership exceeds all
the betas for transformational leadership.
From the results in Table III, the unstandardized beta coefficients in model 2 indicate that
after controlling for the contributions of transformational leadership variables, contingent
reward is a significant predictor of job satisfaction and contributes to explaining the
criterion variance. Particularly, the coefficients in step 2 indicate that, in all the four blocks,
the contributions of contingent reward (i.e. transactional leadership) augment
transformational leadership and not the reverse. Thus, the augmentation hypothesis is
supported by the significant positive beta weights in step 2. It is also important to note that
the reverse order of initial entry of predictors is summarized as a note to Table III. Since this
result shows that when the contingent reward variable is entered first in the model, the
associated beta (B ¼ 0.41) exceeds the betas for the dimensions of transformational
leadership, it confirms the augmentation effect for transactional leadership rather than
 LODJ transformational leadership. This finding is not without precedent. For example,
Schriesheim et al. (2006) and Bass et al. (2003) reported that transactional leadership
augmented transformational leadership, rather than vice versa.

Moderation effect
Similar to prior studies on moderation analysis (Aiken et al., 1991), the current study tested
the moderation effect by creating multiplicative interaction terms. In order to reduce the
correlation between the interaction term and the variables comprising the interaction and
avoid the potential problems of high multicollinearity, the variables were centered around a
mean of 0 in accordance with the procedures outlined by Aiken et al. (1991). As shown in
Table III model 3, the analysis of interactive effect reveals some significant effects. Two of
the four dimensions of transformational leadership are moderated by contingent reward.
These dimensions are idealized influence and intellectual stimulation. These results provide
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evidence for enhancing moderation, where increasing the moderator (contingent reward)
would increase the effect of the idealized influence and intellectual simulation on employee
job satisfaction. The change in R2 (ΔR2) is all significant, indicating that the predictors
account for a significant proportion of the variance in job satisfaction.
As a further examination of the significant interaction effect, median splits were created
on the moderating dimension of contingent reward and used to run two separate
regressions. Values within +1SD or −1SD of the mean were inserted into the estimated
regression equations to graph the interactions as shown in Figures 2 and 3. This approach
was in line with the suggestion by Cohen et al. (2013).
From Figures 2 and 3, it is evident that the slopes of the regressions are less positive
under the high level of the moderator variable (i.e. contingent reward) compared to the low
level of the moderator variable. Therefore, the results in Figure 2 indicate that for employees
who perceive high contingent reward, idealized influence has a stronger effect on their job
satisfaction than those who perceive low contingent reward. Similarly, the results in
Figure 3 suggest that for employees who perceive contingent reward to be high, intellectual
stimulation has a stronger effect on job satisfaction compared to those who perceived
contingent reward to be low.
As a final check on the moderation effects, the slopes of the graphs in Figures 2 and 3
were compared to determine if they are statistically different from 0. This was done using
t-tests. The results showed that both slopes for the low level of contingent reward (Figure 1,
slope ¼ 0.699, t ¼ 3.46, p o0.01; Figure 2, slope ¼ 0.491, t ¼ 3.69, po0.01) differed

3.5

3
Job satisfaction

2.5

1.5

1
High CR
Figure 2. 0.5
Idealized influence × Low CR
contingent reward 0
–1SD +1SD
interaction
Idealized influence
 4 The moderating
3.5 effect of
contingent
3
reward
Job satisfaction

2.5

1.5

1
High CR Figure 3.
0.5 Intellectual
Low CR stimulation ×
0 contingent reward
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–1SD +1SD
interaction
Intellectual stimulation

significantly from 0. Similarly, the slopes for the high level of contingent reward (Figure 1,
slope ¼ 0.261, t ¼ 2.28, p o0.05; Figure 2, slope ¼ 0.511, t ¼ 2.31, p o0.05) differed
significantly from 0. From these results, it is concluded that the moderation hypothesis of
contingent reward is fully supported for the transformational leadership dimensions of
idealized influence and intellectual stimulation.
The findings of this study offer support for both House’s proposed moderation
hypothesis and Bass and Avolio’s proposed augmentation hypothesis. In a study to test the
proposed interaction between transactional and transformational leadership, Schriesheim
et al. (2006) did not find support for House’s proposed moderation or Bass and Avolio’s
proposed augmentation hypothesis. However, in a meta-analytic study, Judge and Piccolo
(2004) found support for the augmentation hypothesis. Vecchio et al. (2008) also found
support for both the augmentation and interaction effect on performance.
Contrasting the present study with those of prior study by Vecchio et al. (2008), the study
by Vecchio et al. (2008) examined high school teachers and their principal in the California
public school system while the current study examined Ghanaian banking industry.
The study by Vecchio et al. (2008) also used predictors which included four-item measure of
transformational leadership (vision, performance expectations, intellectual stimulation
and participative goals) and contingent reward while the current study used the
standardized MLQ-5X scale. A similarity in the findings of both studies is that the weights
of contingent reward are greater than the weights of transformational leadership.
Both studies also provide evidence to support augmentation effect for transactional, rather
than transformational leadership. This reverse finding is not unique to both studies.
However, other previous studies have reported similar findings (Bass et al., 2003; Judge and
Piccolo, 2004).
Finally, it is also important to note that the effect sizes of the predictors in the present
study are greater than the earlier study by Vecchio et al. (2008) albeit they are within the
ranges reported by Podsakoff et al. (2006) in their meta-analytic study. This outcome is
plausible because the measures of transformational leadership used in this study are
different from those that were used in Vecchio et al.’s (2008) study.

Practical implications
The findings of this study have some practical implications, four of which are discussed
here. First, from a managerial point of view, the selection of individuals for leadership
positions should be done with recourse to employees who have traits of transformational
 LODJ leadership since these traits have positive causal link with employee job satisfaction.
For employees who do not have these traits, it would be especially important to develop
organizational practices that promote respect and support fair treatment. Regardless of the
individual’s styles, it may also be useful for banks to be actively engaged in training
their managers to acquire transformational qualities and skills and inculcate them in their
interactions with subordinates.
Second, to increase employee job satisfaction, managers and supervisors in the Ghanaian
banking industry must be able to intellectually challenge their followers to think and solve
problems creatively. At the same time, they should have in place contingent reward scheme
to recognize people who are able to achieve their set goals and targets. Seeing that
the banking sector can become stagnating for many employees, as they tend to stay in a
particular position for many years, training and development must be an active part of the
banking operations. The training content must also be broadened to involve general but
pertinent issues such that employees get to learn new things that could probably stimulate
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their interests in the organization as a whole than limiting training and development to their
particular areas of work. Trainings that continuously limit employees to their specific roles
end up becoming boring, as employees get no new ideas and challenges from them to make
them handle challenges creatively.
Third, the results of idealized influence on job satisfaction present another opportunity for
Ghanaian banks, through their leadership, to instill pride in their workers, display assurance,
make commitment to championing new possibilities, develop a shared sense of duty that will
invoke eagerness and responsibility to make ethical and moral decisions. These idealized
behaviors can lead to employee job satisfaction. Again, since idealized influence/charisma
enhances subordinates’ job satisfaction, bank leaders should be encouraged to empower their
followers by developing them into high involvement individuals and teams focused on
achieving the organizational vision, mission, goals and objectives.
Finally, the moderating role of contingent reward on the effect of transformational
leadership on job satisfaction implies that banks can provide higher rewards or at least
manipulate the perception of it by employees or subordinates. As reported in the findings,
employees who perceive high contingent reward by idealized influence leaders will be more
satisfied with their job than their counterpart who perceives low contingent reward.
Similarly, the results imply that employees who perceive contingent reward to be high will
record higher job satisfaction with their transformational leaders who exhibit intellectual
stimulation compared to those who perceived contingent reward to be low. Having noted
these practical implications, it needs to be acknowledged that although contingent reward is
found to moderate the relationship of idealized influence and intellectual stimulation on job
satisfaction, this study did not investigate how contingent reward can be truly actualized or
practiced. The recommendations are drawn from the theoretical expositions.

Conclusion and suggestions for future research

The present study has explored the effect of the dimensions of transformational
leadership style on employee job satisfaction in the banking industry and the moderated
effect of contingent reward on these causal relationships. The main findings are that all
the four dimensions of transformational leadership (i.e. idealized influence, intellectual
stimulation, inspirational motivation and individualized consideration) are significant
predictors of employee job satisfaction. Furthermore, the findings reveal that after
controlling for the various dimensions of transformational leadership, contingent reward,
a dimension of transaction leadership, augments the positive effects of transformational
leadership and not vice versa. The result of the moderation analysis also indicated that
two out of the four dimensions of transformational leadership were found to have
interactive effect (idealized influence interacting with contingent reward and intellectual
 stimulation interacting with contingent reward) on employee job satisfaction. These The moderating
findings are largely consistent with previous studies and offer support for both the effect of
argumentation hypothesis and interaction effect. contingent
Although the findings make important contributions to the organizational literature and
leadership practice in the banking industry, the inherent limitations of cross-sectional reward
surveys and the focus on specific industry and country do not allow generalization of
the findings. Therefore, moving forward, it will be curious to know if the same results would
be evident in the banking sector of more established or developed economies. It may also be
interesting to know if the moderating effects of contingent reward on the two behaviors of
transformational leadership (idealized influence and intellectual stimulation) are dependent
on culture/country.
Also, apart from contingent reward, transactional leadership style has other dimensions,
namely, management by exception both active and passive, which were not considered in
this study. Therefore, future research can expand on the scope of the current study by
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investigating these variables in the context of other sectors like the hospitality industry,
automotive industry, construction sector and government departments. Such studies will
add to the understanding on the utility of leadership styles on employee job satisfaction.

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Corresponding author
Ibrahim Mohammed can be contacted at: ibrahim.mohammed@upsamail.edu.gh

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